The Centre’s policy think tank Niti Aayog stated Thursday that the prevalent slowdown in the country’s economy is due to the distrust amongst the private sector where the credit situation is stagnant. “Nobody is trusting anybody else… within the private sector nobody is ready to lend, everyone is sitting on cash…you may have to take steps which are extraordinary,” Niti Aayog vice-chairman Rajiv Kumar was quoted as saying by PTI.
Kumar further stated that ‘extraordinary’ steps are needed to tackle the stress in the financial sector which has led to to a slowdown in the economy. He said that the government need to take measures that eliminate the distrust in the private sector players and encourage them to raise investments.
Terming the present crisis as unprecedented, Kumar told that ‘nobody had faced this sort of situation in the last 70 years where entire financial system was under threat’.
Explaining the origins of the present economic situation, the Niti Aayog vice-chairman said: “The entire episode started with indiscriminate lending during 2009-14 leading rise in non-performing assets (NPAs) post-2014.”
Kumar further explained that the rising NPAs compromised the banks’ ability to lend, meanwhile shadow banks occupied the credit vacuum who took over the task of lending loans.
The non-banking finance companies (NBFCs), he said, could not manage this high loan growth leading to defaults by some of the large entities triggering a slowdown in the economy eventually.
“The whole nature of the game has changed after demonetisation, the Goods and Services Tax and the Insolvency and Bankruptcy Code. The earlier period where you had 35 per cent cash sloshing around, it has become much less now. All of these put together it is a fairly complex situation. There is no easy answer,” he was quoted as saying.
On the issue of delay of payments by the government and its departments to the private sector, Kant stated that it could be one of the reasons for the slowdown but assured that the authorities are making all efforts to expedite the process.
“I have no hesitation in saying that there is no business of the government to hold back payments which are due to the private sector. At the moment, there is huge effort going on to try and get this sorted out,” he was quoted as saying.
(With inputs from PTI)